Royal Bank v Delta Logistics is a recent decision of the Ontario Superior Court of Justice. The first defendant, Delta Logistics Transportation Inc. ("Delta"), made an assignment in bankruptcy. BDO Canada Limited ("BDO") was appointed receiver of the assets, undertakings and property of Delta pursuant to a Court order ("Order") under section 243(1) of the Bankruptcy and Insolvency Act. The plaintiff, Royal Bank of Canada ("Royal Bank"), was a creditor of Delta. 23377764 Ontario Inc. ("233"), the second defendant, asserted a possessory lien pursuant to the Repair & Storage Liens Act over seven trucks that belonged to Delta.
BDO moved for an order requiring 233 to deliver to it possession of the seven trucks. BDO believed the seven trucks had net equity and wished to sell them. BDO's position was that it was authorized pursuant to the Order to carry out various tasks, including to take possession of the debtor's property and sell it for the benefit of the creditors. 233's position was that a receiver's rights flow through the debtor. 233 asserted a possessory right to certain of the debtor's property, which it said also affected the receiver.
The Court held that the Order prevailed. Given its breadth, the receiver was entitled to take possession of the liened articles, without prejudice to the claimant's possessory lien claim to be determined at another time. The Court reasoned that such an interpretation was consistent with the necessity for the receiver to maintain control over the debtor's assets to ensure their advantageous and orderly disposition for the benefit of all creditors, and to avoid duplicative costs that would otherwise arise from multiple sales. The receiver's rights and obligations derived from the Order, and not from the debtor. Accordingly, the Court ordered 233 to deliver the vehicles to the receiver, and authorized BDO to sell the vehicles by public auction.
Creditors should be aware that a receiver may be entitled to take possession of and sell property over which the creditor has a possessory lien. This will depend on the breadth of the court order appointing the receiver under the Bankruptcy and Insolvency Act. In Ontario, the model Receivership Order developed by the Toronto Commercial List provides a broad range of powers to receivers and the scope of the order applies to a wide breadth of the debtors' assets. Therefore, creditors should carefully review such orders to determine if it is possible to argue for a carve out of their secured assets from the scope of the receivership, for example, in cases where it may be advantageous for the creditors to sell the asset in order to maximize its value.
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